Thursday, September 21, 2017

Critics say fears on China loan vindicated by event

A controversial Chinese loan may have become a burden due to recent flooding and currency depreciation.

Some members of parliament had initially opposed the loan earlier this year, noting the high value of US$700 million earmarked for the Ministry of Cooperatives and the relatively expensive interest rate of 4.5 percent for an inter-governmental loan.

The loan was to be used primarily for on-lending to farmers, and has a 10-year term.

Concern over the loan has grown as the kyat-dollar exchange rate has plummeted more than 25pc since the start of the year. Daw Khin San Hlaing, who represents Pale in Sagaing Region in the Pyithu Hluttaw, said her fears over the loan have been confirmed.

When negotiations began on the loan, the dollar exchange rate was K800 or K900, but now it is closer to K1300, she said.

“I have no idea if the Ministry of Cooperatives has enough spare money. Our worries have come true,” she told The Myanmar Times.

The ministry aimed to on-lend the capital to farmers in a microfinance program. Daw Khin San Hlaing, who is a member of the NLD, said farmers have already complained that their loan interest rates increased from 1.5 percent to 5pc when they did not pay back their principle.

“At least 1 million acres of farmland was affected by the recent floods,” she said. “It will take at least two or three months for the farmers to recover, and the government has not started with rehabilitation so far.” Farmers who have been hit by the disaster are having trouble making their loan payments to the government or NGOs, she said.

“I want a solution that leaves the smallest burden with farmers,” said Daw Khin San Hlaing.

The Chinese loan, comprised of two tranches totaling $700 million, had received criticism in the hluttaw in February. The loan was director the Ministry of Cooperatives to support microfinance, agriculture and livestock, Minister for Cooperatives U Kyaw Hsan said at the time. He also said that if there is a problem, he would take responsibility.

Of the roughly 60,000 villages across the country, about 20,000 would be covered by microfinance, if each household in those villages received a K100,000 loan.

Businesspeople told The Myanmar Times that they were always concerned about the loan, given the risk of inflation and currency instability. It is also difficult to buy a hedge for the size of the loan.

“It was always going to be a problem, there is no doubt of that,” said a businessperson.